Why Housing Data Are Misleading: The Tax Credit Angle

There’s no question that the home-buyer tax credit juiced home sales over the past year. Since the credit expired at the end of April, we’ve seen new home sales plummet, prompting some to see the drop as one indicator of a double-dip recession.

The question at issue: Did the tax credit bring new buyers into the market? One economist says no.

“Of course, it was always ridiculous to suggest, as Washington did, that the credit would prompt someone to purchase a house,” writes Milton Ezrati, a senior economist and market strategist at Lord Abbett, on the WSJ blog Real Time Economics.

Mr. Ezrati argues that the credit merely pulled forward sales. Those that were in the market for a home rushed to buy in time to get their $8,000. “People who were looking crowded their purchases into March and April in order to qualify for the credit, driving up home sales by almost 30%.” he writes. “Then, because so many of those sales would have occurred after April, recorded sales fell suddenly by about 30% in May. Housing starts and residential construction put in place followed this same up-and-down pattern.”

Mr. Ezrati uses this point to argue that housing data are misleading and that the market has compensated for the gyration surrounding the tax credit. In fact, he points to the relatively stable housing market as one of seven indicators that we are not in a double-dip recession.

The blog comments on Mr. Ezrati’s post are pretty harsh, many readers seem to think that another dip is inevitable. On his point about housing, one commenter says that, of course the credit brought new buyers into the market: “I really wasn’t in the market for a house until the credit convinced me it was worth the risk. I found a home that was 33% less than it was in 2008, and got $8,000 tax credit to boot. Who wouldn’t have bought a house who could afford one?” writes Ryan Smith @1:48 p.m.

Readers, I throw the question out to you: Did the home buyer tax credit push new buyers into the market? Did you buy a house because of the credit? Or were you already in the market for a home?